Rogue traders hit Morgan Stanley and Merrill Lynch

Losses and Lawsuits

LONDON - Investment bank Morgan Stanley has suspended a suspected rogue trader who reportedly cost the bank $120 million (£60 million) by overpricing investments. Matthew Piper, a middle ranking credit trader working at the bank's London offices, was suspended a month ago and the incident has been reported to the UK Financial Services Authority. The news comes after rival US bank Merrill Lynch launched a separate investigation, probing the activities of one of its London-based equity derivatives traders on suspicion of inflating mark prices on single stock derivatives.

Merrill Lynch said its risk management system caught the suspicious trades, said to have taken place in April, while Morgan Stanley has clearly been less fortunate. The bank said it discovered the suspicious investments in the second half of May and believes that they had gone undetected for at least three months. It has disclosed a $120 million "negative adjustment" related to overstated valuations on some of the trader's positions. There are key similarities between the two cases. Both involved the repricing of difficult-to-value investments using mark-to-market models reliant upon highly illiquid markets.

These fresh trading incidents follow January's rogue trading scandal at Societe Generale and another investigation at Swiss bank Credit Suisse. Morgan Stanley's chief financial officer, Colm Kelleher, said the bank had "zero tolerance" of such behaviour.